Preston Tucker: A Generation
Too Late

by Gregory
Rehmke

[From
the October, 1988 issue of Econ, a publication of the
Reason Foundation.]

Ask your
parents or grandparents about the Tucker'48. After World War
II everyone wanted one of these sleek new cars of the future--but
only fifty people ever got one. George Lucas and Francis Ford
Coppola bring this story to screen in Tucker: The Man and
His Dream. The movie dramatically illustrates the dangers
of a mixed economy, with its meddling bureaucrats and myriad
behind-the-scenes "arrangements" between politicians and businessmen.
Central to the idea of free enterprise is the freedom of entrepreneurs
to bring new competition into any industry--freedom to succeed
by offering consumers a better product, and the equal freedom
to fail. But though most businessmen claim to support free-enterprise,
far fewer favor new competition in their own industry.

"Creative
Destruction" is the phrase economist Joseph Schumpeter used
to describe the innovation and competition in a free economy
(see "MTV & capitalism's creative destruction" in Econ,
fall, 1987). Preston Tucker was a visionary, innovator, and
entrepreneur. His vision was of an automobile on technology's
cutting edge, incorporating an aluminum engine, independent
suspension, fuel injection, disc brakes, seat belts, and other
innovations not seen outside the racetracks of his day. Many
remember the Tucker'48 for its middle headlight that turned
with the steering wheel.

Entrepreneurial
vision by itself is not enough, and Preston Tucker needed
financing to turn his dream car into reality. From the very
beginning Tucker ran into stiff opposition from the Securities
and Exchange Commission (SEC), an agency of the federal government.
Even his first sales of franchises (the right to sell future
Tucker automobiles, if and when they were produced) brought
an SEC investigation. Tucker complained that selling dealerships
wasn't the same as issuing stock, but the SEC investigated
anyway.

The SEC
later caused costly delays in approving the initial Tucker
stock offering. By selling stock in Tucker Corporation to
the public, Tucker was inviting them to join his enterprise,
to become part-owners and accept the risk of ownership--by
sharing the profits of success, or the losses of failure.
Funds raised from dealership and stock sales provided the
money to design and build the first Tucker'48s.

But the
SEC never stopped its harassment of Preston Tucker. The established
auto industry didn't want new competition, and their "Senator
from Detroit," Homer Ferguson, led the battle to crush Tucker
Corporation. Further energizing the investigation of Tucker
was SEC Commissioner Harry McDonald, also from Detroit. Regional
SEC Chief Thomas B. Han apparently hated Tucker, and was relentless
in his efforts to bring him down. The SEC may have spent more
money investigating the Tucker Corporation than the Tucker
Corporation spent designing and building the "car of the future."

Tucker:
a Man and His Dream is the story of a dream extinguished
by politicians and government bureaucrats who worked hand
in hand with servile newspapers, corrupt journalists, and
probably the big three automakers--Ford, General Motors and
Chrysler. (How historically accurate is the movie in presenting
the political and economic events of Tucker's venture? See
notes below and links to separate articles.) Tucker's story
sounds a warning we would do well to heed--40 years later--as
today's politicians call for new federal direction of investment
in the American economy, and the SEC continues its long running
campaign against Drexel Burnham Lambert and Michael Milken
(author's note: this was originally written in 1988. Government
prosecutors succeeded in driving Drexel out of business and
putting Michael Milken in jail. Unjustly, in my opinion.).

Preston
Tucker was not alone

The actual
role played by Ford, GM, and Chrysler lobbyists in putting
Tucker out of business is a question for historical research.
American history offers many examples of congressmen and federal
regulatory agencies protecting established companies from
new competition. In a true free enterprise system, firms can
only head off new competition by producing quality products
efficiently, and keeping prices down. Had the Tucker Corporation
survived, the Big Three automakers would probably have, decades
earlier, adopted many of the Tucker'48's new technological
and safety features.

The federal
alphabet agencies have a long history of suppressing competition.
The Interstate Commerce Commission (ICC), for example, according
to many history textbooks, was set up to protect the consumer
from the economic power of the railroads. That is how the
government publicized the ICC, both then and now. Yet the
original ICC legislation was drafted by railroad industry
lawyers. The ICC was actually designed to protect established
railroads from cutthroat competition"-- that is, competition
from the Preston Tuckers of the day. [2]

In economics
this is called the "capture theory" of regulation. The idea
is that no matter how well-meaning a new regulatory agency
is, before long the agency is "captured" by the industry it
was designed to regulate. [3] The Federal Aviation
Authority (FAA) was supposed to protect consumer safety by
regulating the airlines. Instead, the FAA protected established
airlines from competition--and virtually no new airlines were
approved by the FAA from its founding until deregulation under
the Carter administration.

Government
by decree

Tucker
biographer Charles T. Pearson explains the political economic
system Preston Tucker had to battle, and entrepreneurs still
battle today; "During the Roosevelt Administration there developed
a system of government by decree, under which even minor officials
practically made and enforced their own laws. In practice,
it was reversion to an almost feudal form of government, in
which heads of departments and bureaus became little dictators!'4
One of these "little dictators" was Wilson Wyatt, head of
the National Housing Agency (NHA).

Launching
a major enterprise stretched Tucker's business skills to the
limit. He was stretched still further defending his enterprise
from Wilson Wyatt and the NHA.

After
World War II, the government disposed of many of the manufacturing
facilities built during the war. Tucker, as the movie showed,
bid for a giant empty plant in Chicago and an the right to
lease it from the War assets Administration (WAA). But Wyatt's
NHA tried to reverse the WAA decision and award the plant
to the Lustron Corporation to build prefabricated housing.
While Tucker was defending his private-sector financing efforts
from ongoing SEC attacks, Wyatt had already lined up $12 million
and $52 million government loans for Lustron from the Reconstruction
Finance Corporation (RFC), the federal investment agency created
during the New Deal. Tucker was drawn into this complicated
political battle, which before it was over involved five government
agencies. [5] Tucker fought back the only way he could,
by finding politicians motivated and able to fight Wyatt,
Senator Ferguson, and the others arrayed against him.

--- [Editor's
Note: Reader Ed Moore emailed the following correction to
my story. I received an earlier email arguing my account of
events was inadequate (okay, actually he said it was just
wrong). Anyway, here is Mr. Moore's email:

I realize
that this article was written fourteen years ago. But its
current posting on the web requires some response--especially
since Lustron's story is far less well-known than Tucker's.

Wyatt
had been rejected by the RFC for a $52 million dollar loan
for Lustron Corp.--the company that Wyatt was trying to get
the Chicago Dodge plant for.

I would
also be careful quoting Coppola's movie since it is does contain
some creative liberties that are not factual--if you watch
the movie, the characters claim that Lustron was awarded the
plant. This is not true. According to Senate committee hearing
records, Wyatt's claim on the Chicago Dodge plant was rejected
and also quashed Wyatt's hopes of getting money from the RFC
for Lustron. Wyatt immediately resigned in protest.

As
a matter of fact, Lustron was not awarded a loan until June
1947 and a plant in Columbus, OH.

Actually
Tucker and Strandlund (Lustron's president and founder) probably
had much in common as both had a dream of delivering a product
that far exceeded in quality and vision what was currently
being offered to consumers and both ran up against entrenched
forces that desperately wanted to see their failure.]

On May
28, 1948, just when Tucker Corporation began to turn the corner
with both its manufacturing challenges and financing difficulties,
the SEC and the justice Department launched a dramatic new
full-scale offensive. The SEC leaked news of an internal report
it said would blow Tucker Corporation sky high. The leaks
seemed aimed at influencing a then impaneled grand jury, which
soon called for an indictment--and Tucker was dragged into
court. Though the charges were later shown to be mostly fabricated
by the Justice Department and the SEC, the damage was done.
[need footnote here to support this claim.] In those
pre-Watergate days the public had far more faith in its public
officials, and Tucker's reputation and company were ruined.

In the
movie, Tucker himself delivers a dramatic final summation
to the jury. His speech echos the theme of Robert Higg's article
"Crisis and Leviathan" in Econ Update, September, 1988--that
the growth of cozy government/business relationships in America
threatens both liberty and prosperity.

Actor
Jeff Bridges, as Preston Tucker, shares his vision of America:

"When
I was a boy I read about Edison, Ford, the Wright brothers.
They were my heroes. Rags to riches wasn't just the name of
a book. It was what this country was all about.

"We invented
the free enterprise system, where anybody, no matter who he
was, where he came from, what class he belonged to, if he
came up with a better idea for anything, there was no limit
to how far he could go.

"But I
grew up a generation too late, I guess. The way the system
works now, the loner, the crackpot, the dreamer with some
damn-fool idea that ends up revolutionizing the world, well,
someone like that is squashed by big business before he knows
what hit him. The new bureaucrats would rather kill a new
idea than let it rock the boat.

"If Benjamin
Franklin were alive today, he'd probably get arrested for
flying a kite without a license.

"We're
all puffed up with ourselves right now because we invented
the A-bomb and we beat the daylights out of the Nazis and
the Japanese but if big business closes the door to
the little guy--you, me--the little guy with new ideas, we've
not only closed the door to progress and hard work, we've
sabotaged everything we fought for. We might just as well
let the Japanese and the Germans walk in here and tell us
what to do. What's the difference? If new ideas can't be allowed
to flourish, then we've just exchanged one set of rulers for
another. Right?" [6]

And one
of the jurors quietly mutters: "Right!"

Retreat
to the old world

In the
old world, before American free-market economy developed,
entrepreneurs needed the blessing of the state to survive.
Kings granted monopolies to manufacturers, and subsidized
enterprises they favored.

The two
world wars partially returned the American economy to that
age (see David Boaz' "The Moral Equivalent of War"). Preston
Tucker's story illustrates the result. In his biography of
Tucker, Charles Pearson lays bare the injustice of the system,
as he compares the government's persecution of Tucker with
its subsidies of industrialist Henry Kaiser.

Like Tucker,
Henry Kaiser set out to build automobiles, but Kaiser had
both the government's blessing and the government's money.
Charles Pearson observes: "While Tucker was being tried [in
court], Kaiser applied for and got a heavy RFC loan to
develop and tool new models "[7] Stock in Kaiser's
automotive enterprise, says Pearson, "never paid a dividend,
yet when the company failed there was no public investigation
of what Kaiser had done with $54,000,000 of stockholders'
money, why he needed more money, or where the car was he had
promised when he sold his stock!" [7] Step by step
Pearson compares Henry Kaiser's enterprise with Preston Tucker's.
[click here for link]. The best man didn't win.

[For
a contrasting view of the events and economics of Preston
Tucker's enterprise, see ]

1. See,
for example, "History Defalsefied" chapter 2 in Henri Lepage's,
Tomorrow Capitalism, Open Court, 1982; The Incredible Bread
Machine, World Research Inc., San Diego, 1974, Burton Folsom,
Entrepreneurs vs. the State, 1987 (available from Laissez-Faire
Books, New York, NY); also see Robert Wiebe, Businessmen and
Reform; James Weinstein, The Corporate Ideal and the Liberal
State

For further
reading on the SEC, see The SEC and the Public Interest by
S. Phillips andi. Zecher, MIT Press, 1981. For more on Preston
Tucker see "A Tucker Memoir: A Dream as Bright as Its Chrome;"
New York Times, September 18, 1988, (in Forum), by Philip
S. Egan, author of the forthcoming Design and Destiny: The
Making of the Tucker Automobile. Also see "Three Men and a
Car," Autoweek cover story on Preston Tucker, July
4, 1988.